Brazil's $66 Billion Stimulus Could Signal A Shift In Its Growth Strategy

Brazil's president Dilma Rousseff announced a $66.0 billion
stimulus plan intended to revive the country's road and railway
systems and to help bolster the economy, according to the
Financial Times.

The country which was once an emerging market darling has seen
its economic growth slow since late last year.

It's government now expects
GDP growth of 3 percent in 2012, down from 4.5 percent, and
the real has weakened against the dollar. Business confidence is
floundering and it's central bank reported that
foreign investments have declined 40 percent in the first
half of the year.

BBVA Research which projects the economy to
grow a much weaker 2.2 percent thinks the slowdown is more
serious. BBVA analyst Enestor Dos Santos writes:

"The Brazilian economy has practically stagnated since the middle
of 2011. More precisely, economic activity accumulates a
minuscule 0.2% expansion in the 12 months to May, according to
the Central Bank’s Monthly Activity Indicator, which is a good
proxy for Brazil’s GDP. GDP itself shows a very shy recovery
(0.20%q/q in Q1 2012 and Q4 2011) after a small contraction of
0.15%q/q in Q3 2011. GDP data for the second quarter of the year
has not yet been released, but high-frequency indicators (as the
CB’s Activity Indicator) suggest that a significantly stronger
recovery for such period should not be expected."

Rousseff is expected to roll out more stimulus packages in coming
weeks and boost fixed asset investment (FAI) an all-important
gauge of government spending. And the Brazilian economy still
needs to see an improvement in the global economy to boost
industrial production at home and demand for its commodities.

But Santos writes that the recent slowdown and concerns of a
credit bubble have also raised questions about the
"sustainability of the Brazilian growth model, based on credit
expansion and private consumption". In fact, this shift towards
investing in public projects and concessions for private
companies taking on these projects, could be an alternate growth
strategy according to
Bloomberg's sources.

With the upcoming 2014 World Cup and 2016 Olympics all eyes are
squarely on Brazil and its policy choices.